Kohn, a prominent entertainment industry lawyer, now says that the process should be halted until it goes before the Second Circuit Court of Appeals. If Cote doesn’t grant a stay, he says, “consumer welfare” will be harmed immediately as the new ebook prices will take effect and shift pricing power to Amazon.

In an interesting tactical shift, Kohn appears to acknowledge that the publishers did in fact collude to fix prices but that the price-fixing was not illegal. Until recently, publishers have denied that they conspired.

This suggests that the publishers who did not settle are now putting all their hopes on a Supreme Court decision that held that price collusion is not illegal in the case of market failure. The argument is based that on the idea that Amazon, with a 90 percent ebook market share, was a monopsony (a single buyer with all the power) and that publishers had to take a one-time step to fix that.

Kohn first made the argument in a remarkable comic-strip he submitted to the court last week:

Can anyone shed a light on that Supreme Court decision that price collusion is not illegal in the case of market failure? This is first I heard that price fixing among publishers is okay in the USA (I know it is legal for publishers to fix price in Germany, France and Spain).

Judge Cote addressed this on pg. 40 of the document giving approval for the settlement:

Quote:

...even if Amazon was engaged in predatory pricing, this is no excuse for unlawful price-fixing. Congress "has not permitted the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies." Socony-Vacuum Oil Co., 310 U.S. at 221. The familiar mantra regarding "two wrongs" would seem to offer guidance in these circumstances.

Judge Cote addressed this on pg. 40 of the document giving approval for the settlement:

Looks like the judge was taking a very hard-line stance, too. That decision could also stack the table of other markets in favor of companies like Wal-Mart, who grow big enough to be able to dictate prices to suppliers.

I wonder when we're going to have our first full-blown megacorp, and which one it'll be?

Kohn is really reaching. Here is the syllabus of the Indiana Dentists case:

Quote:

U.S. Supreme Court
FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986)
Federal Trade Commission v. Indiana Federation of Dentists
No. 84-1809
Argued March 25, 1986
Decided June 2, 1986
476 U.S. 447
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE SEVENTH CIRCUIT
Syllabus
Respondent organization of dentists in Indiana promulgated a policy requiring its members to withhold x-rays from dental insurers in connection with evaluating patients' claims for benefits. The Federal Trade Commission (FTC) issued a cease-and-desist order, ruling that the policy constituted an unfair method of competition in violation of § 5 of the Federal Trade Commission Act, since it amounted to a conspiratorial restraint of trade in violation of § 1 of the Sherman Act. The Court of Appeals vacated the FTC's order on the ground that it was not supported by substantial evidence, holding that the FTC's findings that respondent's x-ray policy was anticompetitive were erroneous; that the findings were inadequate because of the FTC's failure to define the market in which respondent allegedly restrained competition and to establish that respondent had the power to restrain competition in that market; and that the FTC erred in not determining whether the alleged restraint on competition among dentists had actually resulted in higher dental costs to patients and insurers.
Held:
1. The FTC's factual findings regarding respondent's x-ray policy are supported by substantial evidence. There is no dispute that respondent's members conspired among themselves to withhold x-rays, and the FTC's finding that competition among dentists with respect to cooperation with insurers' requests for x-rays was diminished where respondent held sway also finds adequate support in the record. Pp. 476 U. S. 455-457.
2. Evaluated under the Rule of Reason, the FTC's factual findings are sufficient as a matter of law to establish a violation of § 1 of the Sherman Act, i.e., an unreasonable restraint of trade, and hence a violation of § 5 of the FTC Act. Respondent's x-ray policy takes the form of a horizontal agreement among its members to withhold from their customers a particular service that they desire. Absent some countervailing procompetitive virtue, such an agreement cannot be sustained under the Rule of Reason. This conclusion is not precluded by the absence of specific findings as to the market in which respondent allegedly restrained competition or as to the power of respondent's members in that market, or by the FTC's failure to find that respondent's x-ray policy resulted in
Page 476 U. S. 448
more costly dental services than the patients and insurers would have chosen if they were able to evaluate x-rays in conjunction with claim forms. Nor do alleged noncompetitive "quality of care" considerations justify respondent's x-ray policy. And whether or not respondent's policy is consistent with Indiana's supposed policy against submission of x-rays to insurers, it is not immunized from antitrust scrutiny. Anticompetitive collusion among private actors, even when consistent with state policy, acquires antitrust immunity only when it is actually supervised by the State, and there is no suggestion of such supervision here. Pp. 476 U. S. 457-466.
745 F.2d 1124, reversed.

Insurance companies wanted copies of X-Rays for certain dental exams to be used in determining reimbursement rates. The dentist association agreed that none of them would submit X-Rays to the insurers. The supreme court found that this was an unlawful restraint of trade. So the holding is not very helpful to Kohn.

In determining whether there was a restraint of trade in this case, the supreme court said this:

Quote:

The question remains whether these findings are legally sufficient to establish a violation of § 1 of the Sherman Act -- that is, whether the Federation's collective refusal to cooperate with insurers' requests for x-rays constitutes an "unreasonable" restraint of trade. Under our precedents, a
Page 476 U. S. 458
restraint may be adjudged unreasonable either because it fits within a class of restraints that has been held to be "per se" unreasonable or because it violates what has come to be known as the "Rule of Reason," under which the
"test of legality is whether the restraint imposed is such as merely regulates, and perhaps thereby promotes, competition, or whether it is such as may suppress or even destroy competition."

The court then noted that a "group boycott" of the type used by the dentists was usually considered per se unreasonable, but

Quote:

the per se approach has generally been limited to cases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor -- a situation obviously not present here. Moreover, we have been slow to condemn rules adopted by professional associations as unreasonable per se, see National Society of Professional Engineers v. United States, 435 U. S. 679 (1978), and, in general, to extend per se analysis to restraints imposed in the context
Page 476 U. S. 459
of business relationships where the economic impact of certain practices is not immediately obvious, see Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U. S. 1 (1979). Thus, as did the FTC, we evaluate the restraint at issue in this case under the Rule of Reason, rather than a rule of per se illegality.

The big huge problem with these arguments, of course, is that the defendants in this case are *settling.* If there had been a trial, with a lot more evidence, and the court had made its decision on the basis of the per se rule rather than the rule of reason, there might, giving Kohn the benefit of the doubt, be a place for this argument.

But the defendants here were entitled to a trial or to settle, and chose to settle. Any appeal of the court's opinion will need to be based on the propriety of accepting the settlement (i.e., whether the terms and conditions of the settlement are reasonable in light of the harm). You can't appeal on the basis that, if there had been a trial, there was an argument you could have might have permitted you to win. The defendants chose not to have a trial; Kohn can't force them to.

But the defendants here were entitled to a trial or to settle, and chose to settle. Any appeal of the court's opinion will need to be based on the propriety of accepting the settlement (i.e., whether the terms and conditions of the settlement are reasonable in light of the harm). You can't appeal on the basis that, if there had been a trial, there was an argument you could have might have permitted you to win. The defendants chose not to have a trial; Kohn can't force them to.

Exactly.
To put it another way: 6 crooks pull off a heist and are brought in for questioning. Confronted with the prosecution evidence, three choose to accept a plea bargain and the other three want the courts to reject the plea deal.
What are the odds any court of appeals is going to buy any argument?
Not very good as long as the settling parties don't gripe.

Today's news of Harper Collins discounts all over suggest *they* are ready to move on instead of going down, guns blazing.